Book Review: If Everybody Bought One Shoe: American Capitalism in Communist China by Graeme Browning
NOVEMBER 01, 1989 by E. CALVIN BEISNER
Hill & Wang, Keystone Industrial Park, Scranton, PA 18512 * 1989 * 189 pages • $18.95 cloth
China has been every merchant’s dream for centuries: a quarter of the world’s population as potential customers. The possibilities for profit are staggering. But for centuries merchants have dealt with unique obstacles in trading with China. and after 1949, when the Communists took over, the dream turned to a nightmare. The doors slammed shut, seemingly forever.
Until 1979. Then, with a flourish, China threw open its doors. It invited foreign businesses to enter joint ventures with (mostly state-run) Chinese companies and to sell (mostly through state-run companies) to the Chinese people. The dreams turned rosy again.
But will reality match the dreams? If the experiences of most American firms operating in China in the past 10 years foreshadow things to come, not likely.
Financial journalist Graeme Browning tells these firms’ stories in fascinating style. The majority of her book is built on interviews with American executives who tried—or still are trying—to do business in joint ventures in China. Most of the stories are of high hopes crippled or crushed by harsh reality. All of them are of American businessmen meeting obstacles they never could have imagined in their worst nightmares.
The horror stories are impressively consistent: workers so undernourished they can’t stay awake on the job, so undisciplined they won’t work when they can, so used to being taken care of that they figure they needn’t work, so unskilled and lacking in tools that they can’t work productively even when they want to; bureaucracies so tangled that they’re almost impenetrable, bureaucrats so corrupt that nothing gets done without bribes; a legal system so infantile that contracts are unenforceable and almost never fulfilled; an infrastructure so fractured and undeveloped that getting from place to place by rail, air, phone, or road takes many times longer than in almost any other part of the world—if it can be done at all. One wonders, after reading the book, why anyone bothers to try to do business with China.
The answer is obvious: Even if everybody in China bought only one shoe, that would be a billion shoes sold. The potential market is so huge that companies that can afford to look far into the future almost can’t afford to ignore it. They want to get in on the ground floor of relations with China, if they possibly can.
But that potential market must not be mistaken for a real market. For example, the yuan, the Chinese unit of currency, isn’t exchangeable into dollars on the world market. And even if Chinese per capita annual take-home pay were around $450 (a generous estimate; the real figure is nearly impossible to estimate with any degree of accuracy), the resulting $450 billion annual market would be only about 15 percent of the size of the American market, with its mere 240 million people. And at that, the vast majority of Chinese income must be spent on things necessary to survival—items that now make up only a small part of the total American economy.
To make matters worse, even companies that get in on the ground floor can have no rational sense of security, because they never know when even that will cave in under them. The Chinese government that massacred students in Tiananmen Square could, at any moment, nationalize all investments, close the doors to trade, raise taxes to confiscatory levels, and invalidate all contracts.
The Chinese market, despite its great potential, is presently incongruously small and flight-fully shaky. There is plenty of reason to doubt that it will develop into a major market in lessthan 50 years. Its track record certainly gives no reason for confidence. At best, productivity in China’s state-owned industry grew by 0.7 percent per year during the last two decades, when the rest of Asia was booming; at worst, it shrank by 0.2 percent per year. (The difference in estimates, both made by the same World Bank economist, demonstrates another frustration of doing business in China: There’s no sound accounting and pricing system, so estimating economic performance is nearly impossible.) Nonetheless, if, against all odds, the Chinese market does over come its seemingly insurmountable barriers to growth, it will become so huge that many businessmen will find it hard to resist the temptation to take the risks involved in entering the China trade.
If Everybody Bought One Shoe, while not consciously polemical, has the interesting side effect of revealing the reasons for the failure of socialist central planning to engender a healthy economy. A socialist economy lacks the incentives to get people to do more than the bare minimum for survival, the information-processing mechanism to distribute resources according to needs, and the flexibility to support innovation.
The book is informative, well researched (but poorly documented and with no index), and up-to-date. It deals with a country that, for most Americans, has been a mystery, yet could become one of our major trading partners and competitors in the next century. Anyone could gain understanding of China by reading it. Certainly anyone considering doing business in China and who isn’t already an expert on the subject could profit from reading it.
E. Calvin Beisner is the author of Prosperity and Poverty: The Compassionate Use of Resources in a World of Scarcity.